Fred Wilson's thoughts on Foursquare's $20M Series B

http://www.avc.com/a_vc/2010/06/some-thoughts-on-foursquare.html

by jmillerinc • 16 years ago

28 13 16 years ago

davi• 16 years ago

Most interesting bit to me:

"The conversations with potential acquirers [...] allowed the founders to develop close working relationships with some of the most important Internet companies who can not only be acquirers but also distribution partners and monetization partners."

alexro2• 16 years ago

Have anybody had experience with using 4SQ from the advertising side? Does it bring real value as a marketing vehicle?

jw84• 16 years ago

It's not very useful. Knew some people in SF that budgeted 4-digit campaigns and had no discernible sales conversions. Maybe it takes time for the network effect to make it useful? If so, few have the money or risk tolerance to try it more than once. For store owners Yelp is a reliable bet.

The inherent problem is ad money spent by retail locations don't convert to more foot traffic like a Google ad can send more eyeballs. And incentivizing people already at your store with coupons or via an iPhone app is awkward.

FourSquare is the 21st equivalent of billboards, lots of voodoo math and promises involved. And some people get a cheap thrill out of tagging up boards but in the end it's still just a tagged up billboard out on a lonely highway.

But, hey, who would be dumb enough to turn down $20 million and a shot?

evansolomon• 16 years ago

A 4-digit campaign is really not that big, and billboards absolutely work for some companies. Just like TV ads, Adwords, and pieces of paper on cars.

It is far too common to think that less measurable = always bad. It's just not true.

I've never used Foursquare advertising and have no idea if it works, but there are a lot of unfounded "conclusions" here. Think about a restaurant that makes $20/customer, servers 200 customers/day and is open 30 days/month. That's 120k/month. Let's say the 4-digit campaign was $5k and had a 150% ROI, so it generated $7.5k in business. That's 6.25% of the monthly revenue, an amount I could certainly see being hard to parse out due to normal variations.

jacksoncarter2• 16 years ago

tlwr; Four Square is a feature of a cell phone network and that is where it will go. No cell phone company is going to pay whatever the investors now expect if it can rebuild the feature for 10% of that and instantly have more than 1.8M eyeballs.

The fact that I don't know anyone who would pay for FourSquare is irrelevant when considering its greatest value is as an advertising mechanism for a cell phone provider. If ATT can say, "We have foursquare" it'll do better for ATT than I suspect FourSquare will ever generate in revenue on its own.

It would be big if Sprint can say, "We're hip, we have FourSquare and Verizon doesn't." That will get Sprint business, but will Joe Company advertise on FourSquare even with 1.8 million users? Will Joe FS User pay for Four Square? Probably not. The vast majority won't -- ever -- Even with 10 M users. Four Square doesn't provide that kind of value. It provides the Facebook kind of value, which is to advertisers -- not the consumer.

Foursquare is a value in that it helps people connect. But connecting with people is like disposable income. If one option for spending disposable income goes away, the disposable income goes somewhere else. Similarly, foursquare users will go somewhere else to connect if there is another option or foursquare costs too much or anything at all probably. I don't even know if foursquare costs money I don't know anything about foursquare really.

What's the point? The point is, FourSquare is a feature. It's a feature of a cell phone that lets people connect. How much does that feature cost for a cell phone company to build? Does it cost $20M? Does it cost the valuation of FourSquare with a $20M investment? Probably not? I easily believe that Sprint or ATT or verizon could build FourSquare with $20M.

This is why investing $20M in companies like FourSquare is not a wise investment. It's not a rational investment.

The second reason it is not rational is this: FourSquare's competition for a buyout is not FourSquare clones, it is any network with 1.8 Million eyeballs. There are tons of those and many that are much more niche and easier to target and understand.

This $20M investment has just raised FourSquare's valuation so unrealistically high that it will be difficult for them to find someone they can convince to waste enough money on it to get a return on their investment. Even with $20M, the best FourSquare can do is get more eyeballs and they're going to have to get enough more eyeballs to make themselves, as an advertising mechanism, more valuable than all the other advertising mechanisms that have just as many eyeballs, but without the unrealistic expectation on behalf of investors that they need to get a certain return.

Many companies with many more eyeballs exist as advertising media with way lower valuations and way more potential as a rational advertising expenditure from a company that may consider acquiring FourSquare.

alexro2• 16 years ago

They probably extrapolate the number of users by the increasing number of smartphone sales and arrive at some scaring figure of users in, say, 5 years. Then charge accordingly.

pedalpete• 16 years ago

As you say yourself 'I don't even know if foursquare costs money I don't know anything about foursquare really'.

You sure write alot for somebody who doesn't know anything about the service. I don't 'use' foursquare either, but I've tried it and know what it's about.

A single network wouldn't be successful in building a foursquare competitor, as not all of your social contacts are on the same network.

Part of the value of FourSquare in the long term is to be introduced to new places (likely around the world) where your social network has checked in and found value. A great restaurant, coffee shop, attraction, etc.

In addition, there is the game element, which apparently people find fun, but how much fun is a game you can only play with people on the same network? How successful would skype have been if you could only speak to other people who already had skype? That is basically what you are proposing.

amirmc• 16 years ago

how successful would skype have been if you could only speak to other people who already had skype?

Isn't that how Skype got started?

jacksoncarter2• 16 years ago

A single network has lots of people who are friends and would use something like this. Family talk plans are popular sales strategies for the networks. "Family talk with FourSquare!" Imagine that commercial. The game features that require everyone to be on the PS3 or xbox are also successful, so there are plenty of examples that support my idea.

jmm• 16 years ago

Foursquare isn't a carrier feature; it's an independent application. And the reason money is flowing in is because it's an application that is poised to be quite well suited to serving targeted local ads/offers across every mobile network.

My guess is that foursquare will not only be building out its engineering team with the cash, but also its customer service team to better serve big advertising companies and also more localized mom and pop operations.

code_duck2• 16 years ago

Making major decisions for "service, the user base, the team, and the shareholders (pretty much in that order)" doesn't strike me as particularly wise.

In my experience, user loyalty is worth very little. If it suits them, users will happily go and use a competing service that copies everything you do. Caring about the users is noble but a bit misguided since the users don't care about you in the slightest. Of course, people often say "we're doing this for the users!" whether that is the primary motivation or not.

I can see not feeling ready to sell out so soon, though. Foursquare has all sorts of potential and they're well situated to go in a number of directions. For instance, the local review (yelp) direction is natural, and look at the massive valuation Google et. al have considered for Yelp.

code_duck2• 16 years ago

So, people have downvoted this with no comment. My comment was not frivolous or abusive: go ahead and tell me why I'm wrong.My assertion is that citing concern about 'the service and the customers' being the major reason they didn't sell out is either false, or a bad choice.

aditya• 16 years ago

This is an odd post by Fred, a lot of The Company and the service, the users, the team, and the shareholders (in that order) quite unlike his usual free-flowing writing style.

Fred Wilson's thoughts on Foursquare's $20M Series B

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